From Mr Copper to Choc Finger: famous commodity squeezes

Attempts to “corner a market” have been made for centuries, and happen when an
investor purchases a large enough market share to be able to influence the
price of it.

Investors can do this in several ways. The easiest is to buy the commodity and hoard it. Another way is to buy futures contracts and sell them later at a profit after inflating the price. However, very few of these attempts have ever succeeded.

Below is a selection of notable or high-profile trading plays; the list is not meant to be complete, and in no way suggests that these incidents were or were not legal.

Mr Copper

Yasuo Hamanaka, infamously known as ‘Mr Copper’, spent eight years in jail after confessing huge losses during more than ten years of off-the-book copper deals that led to more than $2.6bn in losses.

Mr Hamanaka bought one million tons of copper over a decade in a desperate attempt to keep prices up. At one point he held so much of the metal – as much as 5pc of world supplies – that traders dubbed him Mr Copper.

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Sumitomo agreed in 1998 to pay a record $158m to settle charges of illegal copper trading and it paid a $125m fine to the US Commodity Futures Trading Commission (CFTC). It was then the largest civil fine ever imposed by a US agency.

The July futures contract expired with a premium near £300 a tonne over September cocoa as those short of the market and unable to deliver were caught out.

A group of 16 European cocoa industry participants sent a letter to Liffe on July 2 complaining of speculation in the London market. Liffe is introducing a new trader reporting system similar to the US Commodity Futures Trading Commission (CFTC) that will provide more transparency about who is holding positions in the soft commodity markets.

Golden boys

Financiers Jay Gould and James Fisk conspired in the 1860s in a plot to corner the New York gold market.

Realising the plot, President Ulysses S. Grant authorised the Treasury Secretary to sell enough gold to wreck their plans .But the speculation had already wrought havoc, and brought about the nation's first Black Friday on September 24, 1869.

Onion whiffs

The US Congress was forced to bring in the Onion Futures Act in August 1958 which banned trading in onion futures on the Chicago Mercantile Exchange. Onion prices had swung wildly in 1955 from $2.75 per bag to just 15 cents – little more than the price of the bag holding the onions.

US farmers had alleged traders were attempting to corner the onion market, which led to the act being passed.

A less than sterling job

The market for silver was temporarily cornered in 1979 and 1980, when Nelson Bunker Hunt and his brother William Herbert Hunt held silver derivatives representing approximately half of annual global silver production.

In 1979 the price of silver jumped from $6oz to an all time record high of $48.70oz.

But Hunt brothers had borrowed heavily to finance their purchases and as the price dropped over 50pc in just four days, they were unable to meet their obligations causing panic in the markets.

In 1989, Nelson Bunker Hunt agreed to pay penalties of up to $10m and consented to a ban from commodities trading.

Tin losses

In the early 1980s, Malaysia tried to corner the world's tin market, but had to abandon it with huge losses. It hoped to push up tin prices and force traders on the London Metal Exchange (LME) to buy the commodity from Malaysia at higher prices.

But the plan backfired when the LME changed some of its rules while other producers provided fresh supplies and the US released its huge tin stockpile.

Malaysia's losses were never officially declared, though market estimates put them as high as $500m.

Black gold

In 2002, US energy trader Sempra snapped up almost an entire month's Brent crude oil programme after carrying out a huge exchange-for-physical (EFP) trade, under which it swapped Brent futures for forward contracts that delivered oil. Most of the crude was shipped to China.

Sempra's was one of the last classic short squeezes in the North Sea Brent market before pricing agency Platts introduced additional types of crude into its benchmark methodology, making it all but impossible for a single trader to buy an entire month's worth of crude.

Propane pain

BP was in 2004 alleged to have bought nearly all the propane in the Mont Belvieu storage fields in advance, then held onto it until the end of the month, when other companies who needed the gas on a northern pipeline would pay up for it.

In 2007, BP agreed to pay $303m in civil and criminal penalties for attempting to corner the US propane market, the biggest CFTC fine in history. In return, the government agreed to end criminal probes related to propane, gasoline, crude and other commodity trade. BP also agreed to pay $52m to settle a class action lawsuit brought by customers who said they paid inflated prices in April 2003 and the first half of 2004.